When you buy a home, some of you will apply for a mortgage. Financial institutions (banks or other organizations) will offer you mortgage life insurance to protect your mortgage. This is not a CMHC Mortgage LOAN insurance required when you put down a payment of less than 20%. In that case, you have to buy this insurance which covers the risk for your bank but does not protect your mortgage amount.
So what is the difference between buying a mortgage life insurance from a financial institution or term life insurance (or personal life insurance) to cover your mortgage?
Term life insurance is level if your coverage is 500 000 terms for 20 years. If an insured dies during these 20 years, his/her beneficiary will receive 500 000 even if the mortgage will be less. In contrast, a mortgage life insurance will be the same coverage as their mortgage amount at that moment, because it will decrease with the same amount as your mortgage decreases. For example, if an insured passes away after 18 years from the moment he/she bought a house, and the mortgage amount is 100 000, then only this amount will be covered by mortgage insurance.
Who will receive the death benefits? If you have mortgage life insurance, then your beneficiary is a bank. The bank will get the remainder of your mortgage amount from your mortgage life insurance and your home will be paid out. However, with term life insurance your beneficiary(ies) is the one that you appointed. The beneficiary(ies) will receive the full amount of what you have coverage for. For example, if the beneficiary is your spouse, he/she can decide if they want to pay a mortgage and/or use the money for other needs.
It is easier to qualify for mortgage life insurance because the insurance provider will only have a couple of medical questions and will not look for pre-existing conditions at that moment when you buy this coverage. However, medical underwriting will be conducted after the insured passes away and in that case, the insurance provider will not always pay out the death benefit. In the meantime, a term life insurance company will do medical underwriting before you buy a policy and if you are honest with the term life insurance provider, your death benefits will be available as per the agreement.
Mortgage insurance is group insurance. For this reason, they offer lower premiums but they can fluctuate. At the same time, term life insurance can be not more expensive, depending on your age and health, and may include other features that will fit your needs.
If you are planning to shop around for your mortgage and renew your mortgage at another bank, you might have to buy a new mortgage life insurance and by that time your health can change. You might be considered uninsurable or your new pre-existing conditions can be excluded because medical underwriting will be in place after you pass away. There is no surprise with term life insurance as medical underwriting takes place before you buy the policy, you do not have to worry that your health condition will change after 10 years as your policy will be renewed automatically without medical underwriting. A term life insurance will only consider your current health at that moment when you apply for insurance, there is no more medical underwriting after that.
It is your choice to choose a value for your money, but when you receive much more benefits and flexibility, why not consider these options?
If you would like to receive more information about the benefits of term insurance and mortgage insurance or/and compare the price, please contact us and we will be happy to assist you.